YTL Power pulls out of 4A project

PETALING JAYA: In a surprise move, YTL Power International Bhd has withdrawn itself from a consortium which was awarded the RM3 billion 4A power plant project in Johor, possibly necessating the Energy Commission (ST) to rescind the award and call for a competitive bidding exercise for it instead.
RHB Research in its note yesterday opined that the likeliest outcome at this juncture is that the ST would rescind the conditional award and subsequently call for a competitive bidding exercise, in which YTL Power would most likely participate.
It has maintained a "neutral" call on YTL Power, but with a lower target price of RM1.54 from RM1.71, due to the negative impact the news is likely to have on the company's shares.
In statement issued late yesterday, ST said it accepted YTL Power's decision which was submitted via a letter to the government on June 17, 2014.
"In view of the current situation, having conferred with all parties concerned and in the interest of the project, we accept YTL's decision to decline the invitation," the EC said in a statement yesterday.TNB had not responded to a request for comment as at press time. ST did not comment on the status of the award following YTL's decision.
In a carefully worded statement yesterday YTL Power said it had decided not to participate in the project awarded through direct negotiation with the ST, to dispel any misgivings over the government's commitment to transparency and good governance.
YTL stressed that the ST was transparent over the terms of the award which have been announced, but notwithstanding the STs clarification, there has been much misunderstanding and public debate over the award of the project in recent weeks.
"We are thankful to the government for having confidence in YTL Power, as part of the consortium, to deliver the project on a fast track basis," YTL Power said, adding that it welcomes any opportunity to participate in the project or other new capacity requirements on a competitive basis and is prepared to do so on an accelerated timeline.
YTL is also confident that it will be able to offer competitive rates as demonstrated in recently concluded tender exercises.
"YTL Power remains committed to investing in this country under the leadership of the present government and supporting the government's Economic Transformation Programme (ETP)," it said.
The award to the consortium of YTL Power, Tenaga Nasional Bhd (TNB) and SIPP Energy Sdn Bhd, a company connected to Johor royalty, had courted controversy from the onset with some quarters calling the award a regression in power reform.
YTL Power's statement comes about a week after YTL Corp Bhd group managing director Tan Sri Francis Yeoh Sock Ping's comments on crony capitalism at the Global Malaysia series created a furor, and days after TNB staff staged a protest against its involvement in the project with YTL.
TNB on its part has also been cryptic on its stance, recently saying that they have until July 25, 2014 to decide on whether it was accepting the award.
An analyst whom declined to be named said the move by YTL Power seems to be "emotional" in an effort to side-step the controversy the firm has been faced with recently.
"It's a sensitive issue, I don't think the negative news will fade away easily," he said.
The analyst said as TNB has not committed to take part in the power plant project, it suggests that there might be lack of discussion among the consortium members.
Another analyst who spoke on condition of anonymity also expressed concern at the move, as it is likely to affect the company's reputation if it had been taken without considering shareholders' value.
RHB Research in a research note yesterday said it believes the news will spark a negative knee-jerk reaction to YTL Power's share price over the near term. YTL Power's share price closed one sen lower to RM1.47 yesterday.
The rationale for the award via direct negotiation was to bring forward the operational date of project 4A to 2018 from 2020 initially.